Family Drama

Chung Mong-Koo--the eldest surviving son of the late Hyundai Group founder, Chung Ju-Yung--opened a new chapter in Hyundai history last month. Some 12 years after his father made him chairman of Hyundai Motor Group over a cousin who already had the job, Mong-Koo celebrated another momentous victory in the running family soap opera. The prize: his father's most treasured legacy, Hyundai Engineering & Construction. It was founded in 1947 as the "mother company" of the empire but became a victim of the 199798 economic crisis and then of profligate spending in dubious attempts to open up North Korea to tourism and investment.

The sad loser: Hyun Jeong-Eun, widow of the founder's fifth son, Chung Mong-Hun. She had taken over the separate Hyundai Group after her husband jumped to his death in 2003 from Construction's historic central Seoul headquarters. Mong-Hun had seen Construction collapse into bankruptcy and was under investigation for secretly routing hundreds of millions of dollars into North Korean coffers to bring about the June 2000 summit between North Korea leader Kim Jong Il and the late South Korean president, Kim Dae-Jung.

Chung Ju-Yung, before his death in 2001, had shrewdly divided his holdings, leaving Hyundai Motor and affiliate Kia Motors as an independent chaebol. Hyundai Motor officials insist that blunt, tough-talking Mong-Koo, who long ago earned the nickname Bulldozer, saw the Construction acquisition as strictly business--even as he embraced the company like a long-lost relative. Striding into Construction's headquarters on Apr. 1, he announced a $4.6 billion payment to the creditors for 34.9% of the shares. He would now work out of his father's old office suite in the building, rather than at Hyundai Motor's distant towering headquarters.

Normally reticent, Mong-Koo was exuberant as he addressed nervous Construction executives in a packed meeting in the basement auditorium. "Hyundai Motor Group plans to build up the construction sector as the third core,'" he declared, ranking it with motor vehicles and steel as a pillar of Hyundai Motor, which is second in revenue among the country's family-led conglomerates to sprawling Samsung. He ranks second on our annual list of Korea's 40 richest, with a net worth of $7.4 billion, behind Samsung Chairman Lee Kun-Hee.

But why would a chaebol that sold 5.7 million units worldwide last year--edging out Ford for fourth place behind Toyota, GM and Volkswagen--crave the unique distinction among motor vehicle makers of owning huge construction and steel interests? As far as Mong-Koo was concerned, the answer was synergy, not sentiment. "Together with the worldwide global network of Hyundai Motor," he said, "global competitiveness in steel, railways and finance will be a threshold for Hyundai Construction to become a leading company."

Chung Mong-Koo, who has watched the consolidated net income of his 40-plus companies rise more than four times over, to $6.8 billion, since Hyundai Steel joined the group in 2004, scored his latest coup at an opportune moment. Construction's $8.9 billion in revenue last year was "the highest ever for a Korean construction company," he boasted. "This achievement, produced by your efforts," he said, mingling praise with an admonition to do still better, "will be a stepping stone into the future."

Like his father before him, Mong-Koo, who turned 73 in March, is thinking of his own legacy--and getting his only son, 40-year-old Chung Eui-Sun, in line to succeed him. "ES," who ranks No. 5 on the rich list with $2.4 billion, has been on a fast track since joining a Hyundai Motor subsidiary in San Francisco in 1994. Judged ready to stand in for his father after five heady years as president of fast-growing Kia, he was elevated to group vice chairman two years ago. Behind the scenes he and his father have been scrambling to ensure they have the shares to guarantee succession.

Ultimately Eui-Sun may take charge of Construction. Before becoming vice chairman he not only oversaw a steady increase in Kia sales but also gained valuable experience running Hyundai Amco, a small construction subsidiary that has built Hyundai Motor plants in Brazil and Russia. Eui-Sun owns 25% of Amco and, portentously, Mong-Koo named a man from Amco as chief executive of Construction. "Construction is a lucrative business," says Kim Sang-Jo, executive director of Solidarity for Economic Reform, which brought an insider trading case against Mong-Koo that led to a $70 million fine. But, "the most important motive is hidden, the private family benefit. Hyundai Construction was the starting point for Hyundai. If you have Construction, you are the main heir."

The price in terms of family relations, though, has been high. Ever since fending off a hostile takeover bid by founder Chung Ju-Yung's youngest brother soon after husband Chung Mong-Hun's death, Hyun, 56, had set her sights on Construction. Her Hyundai Group seemed to have got it when it was named the preferred bidder last year. The rivalry got ugly, though, when Hyundai Motor spread word that Hyun had failed to raise enough money. Hyundai Group threatened to sue for defamation, but a court agreed in December that the group could not support the loan of slightly more than $1 billion that was needed for the deal.

The bitterness runs deep. Chung Mong-Koo and Hyun were photographed bowing and smiling at an exhibition marking the tenth anniversary of Chung Ju-Yung's death on Mar. 21, but she boycotted a ceremony at the founder's grave attended by Mong-Koo and his four surviving brothers. Now Chung Mong-Joon, the next brother after Hyun's late husband, represents a new threat. Mong-Joon, 56, owns a controlling 11% stake in shipbuilder Hyundai Heavy Industries, bequeathed to him by his father. A member of the National Assembly and honorary president of the Korean Football Association, he has long since given up the chairman and president titles at Hyundai Heavy. He's worth an estimated $4.1 billion.

Much to Hyun's chagrin, Hyundai Heavy owns 24% of Hyundai Merchant Marine, her group's flagship, while Hyundai Motor got 7.8% when it purchased Construction. Hyun owns only 2% (her net worth is less than $300 million) but claims control of between 40% and 45%. However, companies controlled by her brothers-in-law with stakes in Hyundai Merchant Marine voted down her request for an increase in preferred shares needed to guarantee her group's ownership. The legacy of their brother, her husband, seems forgotten aside from inscriptions in the Hyundai Group coffee shop extolling "his accomplishments and exemplary career," including pursuit of South-North Korean cooperation as "a pioneer who put the prosperity of the nation and the people first."

Is it possible, however, that Chung Mong-Koo has strayed too far from when Hyundai Motor had one product line, motor vehicles? Says Jang Ha-Sung, a business professor at Korea University: "There's no obvious reason why Hyundai Motor needs a construction company," except that "every large chaebol has one."